Philip Morris International CEO cheers U.S. FDA tobacco proposal

(Reuters) - The chief executive of Philip Morris International (PM.N) said he was “extremely encouraged” by the U.S. Food and Drug Administration’s recent proposal to lower nicotine levels in cigarettes and nudge smokers toward less harmful alternatives such as e-cigarettes.

The FDA’s announcement was “one of the best articulated positions in many years,” Andre Calantzopoulos, PMI’s chief executive, said in an interview on Monday. It was the first time a major tobacco executive has spoken in depth about the agency’s proposal.

PMI has invested billions of dollars in electronic cigarettes and other alternative nicotine delivery devices, including products that heat rather than burn tobacco. Most of the toxic chemicals in cigarettes are produced by combustion.

The FDA’s proposal to regulate the amount of nicotine in cigarettes to minimally or non-addictive levels surprised many tobacco control experts, and sent tobacco company shares tumbling. PMI’s shares were spared, in part because investors are optimistic about the company’s heat-not-burn product, called IQOS.

Calantzopoulos challenged the view of some tobacco control experts that the industry will fight the FDA’s proposal, in court if needed. He pointed out that lowering nicotine levels is only one part of the proposed policy. The agency also took action to make life easier for e-cigarette manufacturers.

“I don’t think the issue requires litigation or anything of this nature,” Calantzopoulos said. “It requires dialogue in order to see what the feasibility is, and most importantly, how all these measures are phased in.”

The FDA proposal will require a concerted effort between the regulator and manufacturers of alternative nicotine products, he said. “If people understand that this is not an isolated measure but something that is part of a comprehensive policy, I think we can find a solution.”

PMI has a number of alternative products in development. IQOS was introduced in late 2014 and has taken off in Japan. It is currently under review by the FDA.

Calantzopoulos said 3 million people have switched to IQOS from regular cigarettes and 8,000 more are switching every day. Moreover, between 65 and 75 percent of those people switch completely, a far higher number than switch completely to e-cigarettes.

Calantzopoulos believes heat-not-burn products initially have a higher potential to appeal to smokers than e-cigarettes because they more closely mimic the taste of cigarettes. But as e-cigarette technology improves, they too will play an important role in getting smokers to switch, he said.

PMI, which makes Marlboro cigarettes outside the United States, is the second-largest international tobacco company, with global sales last year of $74.9 billion. It is not ready to give up those sales any time soon.

But Calantzopoulos said his company’s investment focus, including sales and marketing, “is squarely in our reduced risk product portfolio, and this is going to be increasingly so.”

If global regulators follow the lead of the FDA, some countries, such as Japan, could quit cigarettes altogether within 10 to 15 years, he said. Other countries, such as Indonesia and the Philippines, could take longer.

PMI was spun off from Altria Group Inc MO.O nearly a decade ago, and Altria will commercialise IQOS in the United States. Some have speculated the two might get back together. Calantzopoulos dismissed the idea.

“There is no such plan,” he said. “We have a very satisfactory relationship with them but I don’t see the reasons that drove the separation reversing.”